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• the existing structure is unnecessarily and overly- complex; THE UK HEAVY • there exists too many industry players with no clear delineation of who is responsible for what; • the existing public/private arrangements are plagued RAIL INDUSTRY – by ‘buck-passing’ as a result of the lack of clearly delineated roles; and • the government lacked the critical direct control it required to regulate the spending of tax payers’ BACK ON money. TRACK? THE NEW BLUEPRINT To address the weaknesses identified above, the White Paper proposes six key changes to the existing industry structure: By Nicholas Buckworth, Kenneth MacRitchie and 1. The Strategic Rail Authority (SRA) will be wound up Raminder Singh, Shearman & Sterling LLP and its strategic responsibilities and financial obligations will be assumed by the Secretary of State. 2. (NR) will be given clear responsibility for operating the network and for meeting required , the Secretary of State for Transport, performance outputs; it will be held accountable for announced in January 2004 a fundamental review of the delivering a reliable service, regulated through a existing structure of the UK heavy rail industry. The contractual agreement between it and the government. conclusions of that review were published in the Department 3. The Office of Rail Regulation (ORR) will become the for Transport’s White Paper entitled “The Future of Rail - July single independent regulator of performance, cost and 2004” (the ‘White Paper’). This article discusses the most safety (in relation to the latter, taking over from the significant developments and structural changes forming Health and Safety Executive). what the White Paper describes as “a new blueprint for the 4. Track and train companies are to work more closely railways”. together – the roles and responsibilities of each will be regulated through new agreements. Further, the number of franchises are to be reduced and more NO MORE BUCK PASSING closely aligned with NR’s regional structure. 5. An increased role for the Scottish Executive, Welsh The public and private UK rail sector face unique challenges Assembly and the Mayor and more local to effectively maintain, upgrade and expand the rail network decision making – Transportation for London (TFL) will born 200 years ago this year. have an increased role over all rail services running in When announcing the rail review Mr Darling and through Greater London. acknowledged explicitly that in order to meet such 6. Freight operators are to be given greater certainty challenges re-nationalisation was not the way forward – the about the rights they have over the national networks; White Paper confirmed that. key routes will be identified over which freight will have The White Paper expressly recognised the need to assured rights of access at identifiable costs. maintain both public and private sector participation. It In the context of franchised passenger services the 1 identifies the key challenge moving forward as the need to revised structure in diagram form is shown in Figure 1 . correctly align the interests and objectives of the private sector with the key priorities of the government -– to utilise private sectors skills and expertise to ensure that a fully STOP THE TRAIN! functional public rail network is delivered at an affordable price. Certain of the proposed changes were anticipated; however, In order to align such interests and achieve those the extent to which the government proposes to increase its objectives, the White Paper highlighted what it described as direct participation in and control over the future of the existing “structural weaknesses” which needed to be network surprised some industry observers. addressed. In short, it concluded that: A key element of the new structure is the winding-up of

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FIGURE 1: FRANCHISED PASSENGER SERVICES

Department for Transport

Arrangements covering what NR will deliver in terms of performance and capacity for a price set by ORR

Network Rail Franchise contracts (responsible for operating the network)

Rail Train NR passengers companies routes

Joint working at local level the SRA and the transfer of its powers (and its outstanding from the SRA to it at the time that the latter is eventually financial commitments to NR) to the Department for unwound. Transport (DfT). The official reasons cited for scrapping the SRA are that “as a public sector body it cannot lead the industry from THE DEVIL IS IN THE DETAIL within, and there are limits to its ability to set the strategic agenda for the railways – which in practice must be the The White Paper is useful in outlining proposals to streamline responsibility of elected Ministers.” the network structure and clarify responsibilities and lines of Two points arise from this. First it was open, through the management. However, not surprisingly given the extent of White Paper, for the DfT to extend the scope of the SRA’s the proposed reforms, the one thing lacking in certain critical powers to provide it with the necessary authority. Instead, the areas is detail – it will be interesting to see how the missing government decided to put itself firmly back into the driving seat. details are fleshed out in the form of the legislation needed to A factor which drove the government’s decision was, implement many of the changes. For example: no doubt, the somewhat impotent position it finds itself in 1. One lynchpin of the new structure is NR’s proposed currently: while it is the major funder of track and train new industry role. As mentioned above, in order to companies the government officially has no direct control implement the new arrangements it is intended that the over or direct relationships with the SRA (a public body DfT and NR will enter into a binding agreement: independent from Ministerial involvement) or NR (a not-for- (a) under which the government will set industry outputs profit company); however decisions taken by the SRA and/or to be delivered by NR for a price set by the ORR; NR impact directly on the government’s wider transport (b) which will set out how industry outputs are to be budget and funding requirements. measured and the amount at which NR is to be Secondly, the White Paper’s statement that the paid; and network’s strategic agenda “must be the responsibility of (c) which will regulate which future rail investments the elected Ministers” has caused some unrest. There is some government and NR are, separately, able to specify concern that replacing the experienced rail executives of the and who is to be responsible for carrying them out. SRA with (in relative terms) much lesser industry experienced The White Paper is helpful in discussing the broad Whitehall officials, may lead the industry straight back into the parameters of the proposed DfT/NR Agreement. problems suffered pre-privatisation. The CBI was forthright in However, given the fundamental importance of that airing its concerns that the rail review “must not lead to agreement to the newly proposed structure, the devil bureaucrats micro-managing the rail network” – a concern will no doubt be in the detail. which will, no doubt, be shared by many in the industry. 2. The White Paper goes on to provide that the DfT/NR It will be critical for the DfT to ensure that there is the Agreement “will run alongside the franchise contracts necessary transfer of experience and ‘intellectual technology’ with the train companies... [so that] the Government

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has control over its total package of support for the industry.” Clearly, careful structuring will be required to CONCLUSION ensure that the overall contractual package works as a co-ordinated whole. What is not clear, however, is The White Paper and its proposed structural changes whether the government’s wish to have “control over its constitute a welcome step in the right direction – but it is the total package of support” will translate into a more first of a number of steps that need to be taken. There will onerous regime for the TOCs – this remains to be seen. need to be a continuation of the close cooperation between 3. It is not entirely clear how the existing contractual the public and private sector (and their advisers) to ensure arrangements will fit within the proposed new structure. the industry as a whole is in a position to meet the required The DfT has made it clear that until the SRA is wound challenge. That is placing the UK heavy rail industry where it up things remain ‘as is’. But what happens thereafter – needs to be – back on track! is it intended that the existing long-term franchises of the TOCs be cancelled and replaced? Note: 1 4. No firm timetable has been given as to when the White Copyright: The – The Future Paper’s proposals might be introduced. It will be critical to of Rail. ensure that such proposals are introduced in as seamless a way as is possible. However, unless all of the new proposals are introduced and become effective overnight By Nicholas Buckworth, Kenneth MacRitchie and Raminder Singh, (very unlikely) there is a risk that the industry will be forced Counsel, Transport and Infrastructure Group, Shearman & Sterling to work within some form of hybrid structure during an as LLP, Broadgate West, 9 Appold Street, London EC2A 2AP, UK. yet undeterminable transition period – depending on the Tel: +44 20 7655 5000 Fax: +44 20 7655 5500 nature of such a hybrid structure that may prove to be Email: [email protected] less than ideal from all parties’ perspectives. www.shearman.com

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